With monetary policy updates coming from both the ECB and BOC in April, I’m looking at these levels on EUR/CAD to play a potential pickup in volatility & my fundie bias.
EUR/CAD Bounce to Resistance?
Fundamentally, I’m still bearish on the euro with the recent trend of weak economic data from Europe, most notably in recent weeks another signal of slowdown from the latest manufacturing PMI reads and broad sentiment data. Also, the ECB has slipped back to an accommodative stance recently with their announcement of pushing back rate hikes plans, and plans to start a fresh round of funding for banks at their last monetary policy meeting in March.
I’m short-term bullish on CAD after Bank of Canada Governor Poloz sounded optimistic in his latest public speech, basically ratcheting back the idea we’ll get rate cut rhetoric from the BOC sometime soon. I also like CAD for its strong correlation with oil, an asset that’s been on run higher this year on various sanctions and OPEC cuts, a situation that isn’t likely to shift in the next few weeks.
And looking forward, the ECB and BOC will meet again this month, and between the two, I think the ECB will be the driver of this pair as I expected more dovish rhetoric after European data March was pretty underwhelming, especially the latest PMI data showing contractionary conditions in both the manufacturing and services sectors.
So with that in mind, I’m looking to short EUR/CAD, but the pair recently made a pretty strong move from the top of this years range between 1.4900 – 1.5200. With the pair now trading near the bottom of the range and stochastic signaling potential oversold conditions, I’m looking for a bounce now before entering short on this pair. This is a situation that could come as early as this Friday with Canadian jobs data coming up, which could put the pair back to the broken support area around 1.5050.
I’m looking to take a nibble at the middle of the range there for my first position, with a potential second entry just under the top of the range if the pair moves higher. My stop will be just above the top of the range, and my target will be the 2018 lows. Here’s what I’m doing:
Short a half position EUR/CAD at 1.5050, max stop at 1.5220, max target at 1.4800
I’ll be risking only 0.50% of my account to start and my potential max return-on-risk is about 1.47:1 for now. Of course, I’ll look to add further to the position or adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on how the ECB and BOC events turn out, or if the markets gives us a surprise within the next few weeks.
That’s it for now. Stay tuned and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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